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Energy price cap to give 11 million customers a fairer deal

7th September 2018

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Over 11 million more households on poor value default tariffs would be protected from being overcharged under proposals announced by Ofgem.

This follows Parliament passing the Government’s Domestic Gas and Electricity (Tariff Cap) Act, which became law on July 19 and gives Ofgem a duty and the powers to put the price cap in place. Ofgem is working to have the cap in place by the end of the year.

When the price cap is introduced suppliers will have to cut their prices to the level of or below the cap, proposed to be £1136 per year for a typical dual fuel customer paying by direct debit, forcing them to scrap excess charges for people on poor value default deals.

The exact savings each individual household would make will depend on the price of their current deal, how much energy they use, whether they have both gas and electricity and how they pay for their energy.

The cap would save consumers who use a typical amount of gas and electricity around £75 per year on average. Many consumers on default deals use more energy than a typical household so their savings would be higher, while those who buy their electricity and gas from different suppliers would also save more. A typical consumer on the most expensive tariffs would save over £120. In total, the price cap would save consumers around £1 billion.

Dermot Nolan, chief executive of Ofgem, said: “Ofgem has made full use of the powers Parliament has given us to propose a tough price cap which will give a fairer deal to consumers on poor value default tariffs.

“Once the price cap is in place, all households in Great Britain covered by the cap will be protected from being overcharged for their energy. Consumers can have confidence that falls in energy costs will be passed on to them and if costs increase, Ofgem will ensure that any rise will be due to genuine increases in energy costs rather than supplier profiteering.

“Households protected by the cap will be able to save even more money by shopping around for a better deal. Meanwhile Ofgem will continue with reforms which aim to deliver a more competitive retail energy market which, combined with protection for those who need it, works for all consumers.”

Ofgem will update the level of the cap in April and October every year to reflect the latest estimated costs of supplying electricity and gas. This ensures households who are covered will always pay a fair price for their energy.

The price cap is designed to be a temporary measure, in place until 2023 at the latest. This will allow Ofgem to put in place further reforms to make the energy market more competitive and work better for all consumers, including making switching energy supplier easier, quicker and more reliable.